Trading Guides Technical Analysis

Triple Top Chart Pattern with Examples

By Stelian Olar, Updated on: Dec 28 2023.

Ever felt like you're stuck on repeat, running through the motions without making progress?

That's how a stock must feel when its price keeps bumping against the same ceiling (resistance levels) over and over again - forming what technical analysts refer to as a "triple top pattern."

Seen by chart-watchers as one of the critical technical chart patterns signaling a trend reversal may be ahead, the triple top acts like a flashing red light, warning traders of likely potholes on the road to higher highs.

But what makes this chart pattern so telling for technical traders?

How can you distinguish a triple top versus other common formations like the head and shoulders?

And what's the difference between spotting this shape in stocks, forex or indices?

In this beginner's guide, we'll cover everything you need to know about the triple top chart pattern and its predictive power, including:

• The triple top pattern meaning
• Real chart examples of triple top in stocks
• The psychology behind stocks triple top
• How to trade when you spot this potential bearish triple top chart
• Key rules for validating breakdowns
• And answer is a triple top bullish or bearish?

By the end, you'll be able to recognize these critical reversal signposts - enabling you to spot changes in momentum before they happen as the pattern occurs.

So buckle up and get ready to avoid some major potholes as we uncover the ins and outs of the tripple top pattern!

Triple Top Pattern Meaning in Technical Analysis

Put simply, the triple top stock pattern indicates a potential shift from an uptrend to a downtrend, signaling that bullish momentum may be ending. It is considered a bearish pattern, meaning prices are expected to fall after the triple top forms.

When tops occur at roughly the same price level across three peaks, it tells analysts that the market is facing significant resistance around that price. As buyers push the price up towards this area multiple times, increased selling pressure kicks in from traders who see that level as overvalued.

After triple tops, these sellers tend to gain control which then causes the price to drop lower signaling a market shift from demand exceeding supply to now having too much supply compared to buying interest.

How to Spot a Triple Top Pattern

Now that you understand the significance of the triple top stocks formation, let’s go through the key characteristics to look for so you can start identifying them on stock charts:

First, triple tops will normally form over an extended period of time - sometimes over the course of many months so when assessing them, it's important to zoom out to the weekly or even monthly timeframes on a stock's chart. Examining the longer-term daily chart gives you proper context.

Secondly, keep an eye out for three distinct peaks at roughly the same price level. It doesn’t have to be exactly the same, but the tops should cluster within a few percentage points. There is often some period of consolidation after the first two tops before pushing up again.

Also, take note of the volume - you will usually see declining volume on each successive peak. This indicates waning enthusiasm behind the uptrend as fewer buyers step in despite the bulls efforts to press higher, it sets the stage for a trend reversal.

Here is a classic triple-top pattern example of how the three consecutive highs took shape over 5 months on Gold’s price chart in 2018. Notice the three crests just below $1,365, demonstrating firm resistance limiting further gains. Once support finally broke leading to a decline, the pattern was confirmed.

Triple Top Pattern Formation

Three key steps assist traders in detecting valid triple-top pattern technical analysis on price charts:

Identify the peaks:

Spotting a bearish triple top begins with locating three clear peaks of similar height on the chart. Zooming out can help reveal how the swing highs align to test comparable resistance zones.

Each peak does not need to hit the same precise level but should spike to roughly match the previous high's elevation. These aligned tops demonstrate the stock's struggle with an area where enthusiastic buyers emerge.

Evaluate the valleys:

Next, evaluate the pullbacks in between the peaks, known in charting as the "swing lows." Healthy pullbacks should retrace a significant portion of the prior advance until support level is reached. The depth of these pullbacks offers clues on the conviction of profit-takers entering after each failed breakout attempt. Shallow dips suggest buyers remain eager to buy up dips aggressively.

Confirm the triple top breakout pattern:

Finally, confirmation occurs when the price breaks below the level of the swing lows that separate the three peaks. This break of support line indicates the tug-of-war has likely shifted in favor of the bears as sellers have overpowered willing buyers - putting the reversal in motion favoring the downside.

Psychology of Triple Tops

Fundamentally, the triple top stock formation signals that a bearish trend may be on the horizon. It indicates the stock has struggled multiple times to break above a key resistance level, suggesting buyers are losing momentum. After three tops occur and the stock fails to push through resistance, sellers often gain control and price falls follow.

Essentially, the pattern translates visually into the kind of price action you would expect to see when bullish sentiment could be waning. The fact we see three tests implies buyers made concerted efforts to break resistance but upon the third failed test, buyers appear exhausted and give way to profit taking selling.

So while not a guarantee, traders view the completion of this triple top stock chart pattern as a high probability sign that downward price moves have a good chance of unfolding.

This answers the question is triple top bullish or bearish?

No doubt about it, the triple top formation is considered firmly bearish rather than bullish by technical analysis practitioners.

Now that you understand the psychology behind the triple top forex pattern and its decidedly bearish implications, it's worth comparing it to similar chart formations.

Quad Top, Triple Top, and Triple Bottom Chart Patterns

Double Top and Triple Top Pattern

Triple tops also draw frequent comparisons to double-top chart patterns showing two peaks of similar height rather than three. While not as dramatic, a double top also telegraphs buyer exhaustion at resistance. Though some traders prefer to see three failed attempts instead of two to raise conviction in a trend reversal nevertheless both double top and triple top patterns are powerful chart patterns to keep an eye on.

Much like double tops trace out an "M" shape with their two peaks and valleys, triple tops display price action resembling a cursive "M" with their three upward moves and subsequent retracements.

Similarly, triple bottoms follow the cursive "W" pattern - with three swing lows separated by bounces painting a series of downward and upward strokes.

These extensions of M and W pattern formations signal whether buyer or seller conviction strengthens at extremes. For triple top and triple bottom chart patterns, the cursive M and W shape shows buyers remain active on three separate attempts to conquer resistance (support). But their failure highlights waning momentum that gives way to profit-taking.

Quad Top vs Triple Top Pattern

The quad top pattern takes this cursive analogy a step further with their four connecting peaks and troughs - pressed up against the same price barrier. While not as common, four peaks display even more vividly the pressure building against exhausted buyers.

Triple Tops and Bottoms Chart Pattern

Finally, the "triple bottom" flips the triple top on its head - reflecting three swing lows at comparable support levels. Except this time, it signals seller exhaustion and hints at a potential upside breakout. This makes triple tops and bottoms chart pattern useful as mirror images to inform trades on both sides of price action.

Now let's shift from stylized letters and dive into real-world examples of these triple reversals in action...

How To Trade the Triple Top Pattern

Remember, the key with chart pattern trading is setting defined trade plans for entry rules, profit targets, and stop loss points. You want to try catching the downward move as selling momentum picks up off the triple top - but also limit downside if the trade doesn’t immediately work out.

A common approach for trading the triple top pattern is:

• Identify clear support level below triple top peaks
• Enter short position with stop loss above pattern highs
• Set initial price target to the same distance as the height from the triple top to the swing low
• Trail stop lower to lock in gains as downtrend extends

So in essence, traders use the triple top formation to frame planned short entries with predefined risk/reward ratios. Rather than trying to pick the exact market top, the goal is benefiting from the anticipated impending bearish momentum without the need to forecast triple top bullish or bearish sentiment.

Putting some thought upfront into how you’ll trade the triple tops you spot separates you from reactive traders. By spelling out your trade plans, you turn this popular reversal pattern into an actionable edge for your technical toolbox!

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